Fear of flying

FEW firms exemplify the difficulties of post-communist Russian business better than the national airline, Aeroflot. Service is sullen, revenues are siphoned off by obscure offshore companies, management is chaotic, and technology is obsolete—yet, amazingly, Aeroflot just keeps on flying.

At least the faces at the top are changing. The decline of Boris Berezovsky, Russia's best-known tycoon (see article), led to the sacking on February 8th of his two main allies at the airline, along with a bunch of other senior managers. Aeroflot's chief executive, Valery Okulov, says he will also dispense with the services of both Aeroflot-Tour, which sold package deals to Russians, and Andava, a Swiss-based company that ostensibly consolidated, but in reality, he says, diverted the airline's foreign ticket sales.

Will habits change in the air too? Perhaps. The airline is launching a frequent-flyer programme, and announced some unspecified cost-cutting measures. “For a Russian company even to use the word restructuring is quite something,” says Kim Iskyan of MFK Renaissance, a Moscow-based investment bank.

But there is a long way to go. Even if the managers succeed in ditching the bad habits of the past, cash will be scarce. Operating results for 1998 were poor: cargo volume declined by 8% and passenger travel by 20%. Plans to expand and modernise the fleet have been stalled, because of the suspension of $1 billion in credit from US Eximbank.

The only consolation is that other Russian airlines are in even worse shape. Transaero, a glitzy competitor boasting western aircraft and levels of service, was left reeling by the devaluation of the Russian currency—it borrowed in dollars, but sells mainly in roubles. Small regional airlines are going bust too. Aeroflot will be able to pick up extra routes cheaply. Whether it can make money from them is another matter.